Following the President of France’s adoption of Say’s Law, there has been an article by Paul Krugman, Scandal in France. The scandal, as seen by Krugman, has nothing to do with first ladies but with economic first principles.
I haven’t paid much attention to François Hollande, the president of France, since it became clear that he wasn’t going to break with Europe’s destructive, austerity-minded policy orthodoxy. But now he has done something truly scandalous.
I am not, of course, talking about his alleged affair with an actress, which, even if true, is neither surprising (hey, it’s France) nor disturbing. No, what’s shocking is his embrace of discredited right-wing economic doctrines.
You would think that the way he writes that the recovery that followed the American stimulus has been a light unto the nations and that the US and Keynes have much to teach us about economic management.
Mr. Hollande, in announcing his intention to reduce taxes on businesses while cutting (unspecified) spending to offset the cost, declared, “It is upon supply that we need to act,” and he further declared that “supply actually creates demand.”
Oh, boy. That echoes, almost verbatim, the long-debunked fallacy known as Say’s Law — the claim that overall shortfalls in demand can’t happen, because people have to spend their income on something. This just isn’t true, and it’s very much not true as a practical matter at the beginning of 2014. All the evidence says that France is awash in productive resources, both labor and capital, that are sitting idle because demand is inadequate. For proof, one need only look at inflation, which is sliding fast. Indeed, both France and Europe as a whole are getting dangerously close to Japan-style deflation.
That Krugman is as innocent as the day is long of the actual meaning of Say’s Law is merely evidence that he is like 99% of the profession, who have been mis-educated on a principle that was at the very centre of the classical theory of the cycle. He wouldn’t know that either. It is actually shocking to see someone so ignorant of the things about which he so confidently speaks. Well the fact of the matter is that Krugman is an ignoramus who is continually pushing economic advice that is keeping the American economy low and is impoverishing millions of his fellow citizens.
The European economies, and Australia as well, emerged from the Great Depression faster than we have today because they used classical theory and policy to work things out. The UK famously balanced its budget in 1933, at the very trough of the Great Depression. We cut spending here in 1931 and was the first economy to come out of the Great Depression with the Australian trough being reached in 1932 from which time things continually improved.
Only the American economy, with its Keynesian-Roosevelt road to recovery remained in the Great Depression right up until the US entered the war at the end of 1941.
There’s more to the world economy than the US, and even if that is all Krugman knows, even that should make him just a bit more cautious, perhaps a whole lot more cautious in speaking about things he knows nothing about.